This preview shows page 1. Sign up to view the full content.
Unformatted text preview: Morduch (1999) & Microﬁnance Literature Credit and Microﬁnance Aniket (2005): Lending sequentially within a jointly liable group gives the
borrowers incentive to monitor each other and reduces the rents left to the
Aniket (2006): Saving opportunities can only be offered in group-lending
by restricting the number of borrowers in a group – thus creating intragroup competition for loans within the group.
This would lead to negative assortative matching along wealth lines (the
wealthy would group with poorer individuals) – in a two member group,
the borrower’s wealth-threshold for joining the group would be greater
than the non-borrower’s wealth-threshold.
⇒ Offering saving opportunities increases outreach
Group Lending and Auditing the Project
Auditing: Verifying the project’s outcome
◦ Again the lender can encourages the borrowers to audit their
peers, especially given that borrower’s auditing technology is
superior the lender’s
Group Lending and Enforcement of Contracts
Enforcement: Forcing the borrower to repay
◦ The lender may have very limited ability to enforce the contracts where as with an ability to social sanction each other, the
borrowers amongst themselves ﬁnd it cheaper to enforce the
joint liability contracts
Two major mechanisms at work here
(i) microﬁnance projects typically managed by NGOs who “care” more
about reaching the poor than central government (more altruistic) – the
perception that the poor were being rationed out of formal credit markets
Development Economics, LSE Summer School 2007 113 ...
View Full Document
This note was uploaded on 12/29/2011 for the course ECO 307 taught by Professor Dublin during the Spring '10 term at SUNY Stony Brook.
- Spring '10